Risky business

Kevin Conroy, CEO of Exact Sciences, says his company is passionate about fighting colon cancer.

Dr. Richard Boland has been fighting a long battle against a stealthy foe — colon cancer.

If caught early, the disease is one of the easiest cancers to treat and has one of the highest survival rates. But, Boland laments, most people who get it will find out too late.

“Much like breast cancer, if you find it early, there’s a huge difference in outcome,” says Boland, chief of gastroenterology at Baylor University Medical Center in Dallas. “I’ve been working for 40 years on colon cancer. So I’m very excited to see a good test come along. The problem with colon cancer is it’s pretty common, about 5% of people get it, and it’s silent,” he says, meaning there are no symptoms early on, when treatment is likely to succeed.

Boland has watched for decades as scientists tried to develop a simple test that could determine who has the disease in the early stages.

At the moment, one of the most promising tests — Cologuard — is being marketed by Madison medical tech company Exact Sciences. The test has the potential not just to save millions of lives, but to make millions of dollars. That’s why Madison officials are thrilled that Exact Sciences might move its headquarters downtown, as part of a $186 million to $203 million Judge Doyle Square proposal.

“They’ve got the best stool test available right now,” says Boland, who advised the company in its early stages, but adds that he was never paid by the company, aside from some free meals. “There’s no question it’s the best.”

But that doesn’t mean it’s perfect, Boland and others say. “The problem is it’s too expensive right now,” says Boland. The test costs $599, although it is covered by Medicare and some insurance companies. “They’re really going to have to get it below $100 for me to get excited about it.”

Exact Sciences, as a business, isn’t a sure thing. The company’s annual report acknowledges it may never be profitable: “From our date of inception on February 10, 1995 through December 31, 2014, we have accumulated a total deficit of approximately $420.8 million.... We cannot be certain that the revenue from the sale of any products or services based on our technologies will be sufficient to make us profitable.”

So how good of a bet is Exact Sciences? Opinions vary.

For now, the most effective screening test for colon cancer is a colonoscopy. But they’re very expensive, costing more than $5,000 in some places. They’re also unpleasant, requiring a day-long fast and sedation.

“Colonoscopy has become the gold standard,” Boland says. “But they’re expensive, and there’s some element of danger.”

Despite these hassles, colonoscopies fail to detect a small percentage of cancer. The tests are recommended every 10 years for people 50 or older, more frequently for people with a family history of colon cancer or other risk factors.

For decades, scientists have tried to develop a simpler, cheaper test to screen for the disease.

Today, the most common alternative is called the FIT (fecal immunochemical test). The test works by looking for microscopic amounts of blood in stool, an indicator for either precancerous polyps or colon cancer. To take this test, patients scrape a sample from their stool and mail it to a lab.

Similarly, the Cologuard test developed by Exact Sciences (in partnership with the Mayo Clinic) looks for signs of cancer in stool. Instead of blood, Cologuard looks for specific types of DNA that are indicators for cancer. A trial of 10,000 people found that the test had a 92.3% rate of detecting cancer — better than the FIT and almost as good as a colonoscopy.

The test, mailed to patients’ homes, includes a small bucket that fits over a toilet. Patients poop into it. With a swab, they put a small amount of stool into a tube (the Cologuard test includes a FIT test). Then they pour a solution over the rest of the poop and seal the bucket. It’s mailed back to Exact Sciences’ lab in the same box.

The test is recommended every three years.

In recent months, the company has grown robustly. Last October, Medicare began covering the cost of Cologuard for all enrollees. And the list of doctors who prescribe it is growing fast, up from 4,100 at the end of last year to 8,300 as of March 22. The company says its team of 200 salespeople are adding 500 to 600 doctors a week.

In the fourth quarter of 2014, the company completed 4,000 Cologuard tests; in the first quarter of this year, the number was up to 11,000.

“The uptake is really rapid. You’re getting significant interest from doctors early on,” says Jeffrey Elliott, a stock analyst with Robert W. Baird & Co. Elliott expects the company to complete 2 million tests over the next five years and to begin making money in a little over two years.

According to its May 5 quarterly report, revenue in the first quarter was $4.3 million, while expenses were $36.1 million.

But Elliott praises the company’s slow build-up. “If the company was shortsighted, it could be profitable much quicker, but they’re in this for the long haul,” he says.

Other analysts are less confident. Whitney Tilson, an investment adviser with Kase Capital Management in New York, expects Cologuard to do poorly. In a presentation he gave last fall, he explained why he’s “short” on the company’s stock (i.e., expecting it to drop in price over time).

“I prefer to short the stocks of fraudulent and/or evil companies, but that’s not the case here,” Tilson wrote in the presentation. “I obviously hope Cologuard helps reduce the death toll from this terrible disease — I just don’t think it’s likely to (certainly not to the extent that’s reflected in the share price).”

Tilson thinks this is the case because he doesn’t see Cologuard as being much more accurate than the FIT test, which is much cheaper, at about $22. He says there’s also a large “false-positive” rate, which will force some who don’t have cancer to get a colonoscopy.

“The company has analysts who believe this will be a widely used test,” Tilson says in a phone interview. “I think it will be a niche test.”

Tilson also says the fact that the test involves handling poop will turn off many people. Kevin Conroy, the chairman and chief executive officer of Exact Sciences, told the Common Council in a June 2 presentation that his company has made strides in this area.

“One of the hardest things to do in colon cancer screening is to get people to actually return the gift, the donation,” he said, using euphemisms for poop. “We’ve been able to do something that nobody in the industry has been able to do, which is get over 70%” of patients to return the sample.

Boland says that colon cancer screening is a competitive field, “with a lot of people working on this. And there’s a big payoff to humanity.” In fact, Boland is working on a test that will detect colon cancer by looking for microRNA in the blood.

“If you can do a blood-based test and a fecal test, the blood test is going to win that race for obvious reasons,” Boland says. “We know people will get blood tests. Some people will defecate into a bucket and mail it off. But an awful lot of people won’t do it.”

While Boland expects a blood test to be available in five to 10 years, he adds: “In 2015, there is not a good blood-based test.”

Exact Sciences has also looked at creating a blood test, Conroy told the council on June 2.

“It all fails for the same reason.... Your colon is designed to keep stuff out of the blood supply, including cancer cells that fluff off,” he said. “[The colon] does a really good job of that, so it’s really hard to detect stage one cancer from a blood draw.”

Boland says the team at Exact Sciences understands the industry. He says Cologuard has improved over time and expects the company to diversify. In fact, it recently announced that it is developing a blood test to detect lung cancer, in collaboration with the University of Texas MD Anderson Cancer Center.

“There aren’t that many tests that have stood around for a long, long time,” Boland says. “They know that.”

Three sources say that Exact Sciences is planning to apply for a tax incremental financing grant for the project from the city. Lead developer Bob Dunn of the Hammes Company would also likely apply for a TIF grant. Because the project is under negotiation, public details are scarce. But public costs have been estimated as high as $65 million.

In his presentation to the council, Conroy acknowledged the fear that officials may have. “What happens if Exact Sciences someday goes away?”

“It’s not our goal,” he said, admitting that “It happens in our industry.”

Conroy is out of the country and unavailable to comment, although the company was cooperative for this article. In his presentation to council, Conroy sought to alleviate fears by saying that the biotech industry is strong in Madison. Should his company fail, he said, there would be demand for the kind of high-tech labs the city is contemplating subsidizing.

“As we look around the city right now, there isn’t much lab space. I think this is a mini-version of the University Research Park right in downtown Madison,” he said. “For the long haul, that’s a great thing.”